trade-off

production possibilities curve

a graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good; it illustrates the trade-offs facing an economy that only produces two goods (25-27)

efficient in production

when an economy is producing at a point on its production possibility frontier; the production of any particular mix of goods and services in the least costly way; also known as productive efficiency (24-25, 29)

efficient in allocation

the production of the particular mix of goods and services most highly valued by society; requires that the economy allocate its resources so that consumers are as well off as possible; also known as allocative efficiency; where MB=MC (24-25, 28-29)

consumer goods

capital goods

law of increasing opportunity costs

As the production of a particular good increases, the opportunity cost of producing an additional unit rises (i.e. the MC increases); rationale: economic resources are not completely adaptable to alternative uses (27)

absolute advantage

terms of trade

The rate at which units of one product can be exchanged for units of another product; the price of a good or service; the amount of one good or service that must be given up to obtain 1 unit of another good or service (736)